Employment at Will
Most employer/employee relationships in New York State are considered “employment at will.” Generally this means that unless there is a written employment contract, or a union contract, the employer can generally fire the employee without cause. Similarly, the employee can leave the job without fear of being liable for money damages for not continuing the employment. Although employers may not discriminate against employees based upon race, religion, age, sex or other protected classifications, the employment at will can be terminated for most other reasons. A written employment contract can dramatically change these terms.
Employee or Independent Contractor?
Generally, an employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. By contrast, an independent contractor is legally responsible to pay his or her own income taxes, Social Security and Medicare taxes, since there are no payroll deductions.
The independent contractor does not enjoy the fringe benefits that employees regularly receive; such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage.
The Internal Revenue Service cautions that business owners must correctly determine whether the people providing services are employees or independent contractors. The IRS is suspicious of independent contractor agreements which might attempt to incorrectly designate an employee as an independent contractor.
In determining whether a worker is an employee or an independent contractor, the following are some guidelines to consider:
•If there is a signed written agreement that identifies the worker as either an employee or an independent contractor, that may have some relevance in determining the true nature of their legal relationship. Keep in mind however that the Department of Labor and the Internal Revenue Service will not simply accept the parties’ written agreement as conclusive proof of the nature of their legal relationship.
•If the “employer” for whom the services are provided maintains supervision, direction and control over the worker, that suggests that the worker may be an employee, rather than an independent contractor.
•If the “employer” provides fringe benefits to the worker, such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage, that suggests that the worker may be an employee, rather than an independent contractor.
•If the worker owns his or her business, and provides the services through that business entity to several “employers”s or clients, that suggests that the worker may be an independent contractor, rather than an employee.
•If the worker has the right to control the manner of the work, time of work, location where the work is performed, and the methods utilized to accomplish the work, that suggests that the worker may be an independent contractor, rather than an employee.
•If the worker brings his or her own tools and equipment to the work site, that suggests that the worker may be an independent contractor, rather than an employee.
•If the company provides all the tools and equipment, or provides an office for the work to be performed, that suggests that the worker may be an employee, rather than an independent contractor.
•If the worker provides work, labor or services for many“employers”s or clients, that suggests that the worker may be an independent contractor, rather than an employee.
Please keep in mind that these are only some of the factors that the IRS will consider in determining whether a particular person providing services is an employee or an independent contractor.
Employment Agreements
Many workers will enter into one or more employment agreements during their careers. It is important that the worker be represented by a lawyer who is experienced in negotiating and drafting employment contracts. The worker’s employment agreement should include various provisions, such as :
The employment agreement should describe the worker’s duties and responsibilities to the employer, the locations where the worker will be required to perform services, the number of days and hours the worker will be required to work, and the worker’s other responsibilities.
The employment agreement should state the term of the agreement, including the beginning and ending dates of employment. The agreement should also specify those events that would give either the worker or the employer the right to terminate the agreement before the end of the term.
The employment agreement should state the monetary compensation that the worker will receive. This may include a base salary, commission, percentage of profits, and bonus based on objective performance standards.
In addition to the worker’s salary and other compensation, the employment agreement should clearly state the fringe benefits that the worker will receive, such as paid vacations and sick leave, medical, dental and eye care insurance, life insurance, disability insurance, and retirement plan.
Restrictive Covenants
The employment agreement may include some restrictive covenants limiting the worker’s permissible future employment and self employment activities within a specific geographic location, after the expiration or earlier termination of the employment agreement. Restrictive covenants should be carefully reviewed by an experienced employment contracts attorney, and negotiated as to geographic area, length of time and other factors, in order to ensure that the non-compete provisions will not unnecessarily hamper the worker’s employment opportunities after expiration or termination of the employment agreement. Non-solicitation of the employer’s clients or customers, as well as non-disclosure of confidential information are also typically requested by employers.
Medical “Partnership Agreements”
When a worker joins a professional practice, such as a law firm, accounting firm, architectural firm, etc., as a partner, or if the worker’s employment matures into a partnership, it is even more important that the parties enter into a written agreement that defines each party’s rights and responsibilities. If the worker is acquiring an equity interest in the professional practice, the agreement will be more comprehensive than the agreement for the worker who is an employee of the professional practice. In addition to the provisions applicable to an employment relationship, the partnership agreement should also include “buy-sell” terms, such as provisions regarding voluntary sale of a worker’s equity interest in the professional practice, and provisions relating to retirement, disability, death, etc. Depending on the legal status of the professional practice (Partnership, Limited Liability Partnership, Professional Corporation, or Limited Liability Company), the agreement may be a Partnership Agreement, Shareholders’ Agreement, or Operating Agreement.
Contact Us
To have your case or legal matter reviewed, or to discuss your concerns regarding a contemplated employment or independent contractor relationship, or partnership or other equity interest, we invite you to complete one of our Questionnaires, or click Contact Us to send an email. You may also call Michael W. Goldstein to discuss your case or legal matter by telephone, or to schedule a consultation at our office.
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